The Power and Interest News Report: "Iran's territorial disputes with its Caspian Sea neighbors"

Rather than campaigns waged between Russia and Britain for trade routes to India, however, the current struggle is for access to Caspian Sea hydrocarbon resources. While a May 8, 2006 Associated Press article credits Cheney with lambasting Putin for "reversing democratic reforms and using energy reserves as blackmail to gain political leverage," his comments also served as a warning to other great powers involved in Central Asia: the Great Game has a new player. More specifically, Cheney's criticism of Russia reflects the tension arising from U.S. attempts to secure Kazakhstan's cooperation in the construction of a trans-Caspian oil pipeline from Aktau to Baku that would feed into the newly-created (and U.S. supported) Baku-Tbilisi-Ceyhan pipeline. Such a deal would, in effect, break Russia's oil export monopoly in the Caspian Sea region.

The United States' entry into Central Asia has equally important -- and potentially more dangerous -- implications for another veteran player of the Great Game: Iran. Piled on top of 25 years of hostile diplomatic relations, economic sanctions, recent U.S. military action in Iraq and Afghanistan, and threats over a developing nuclear research program, U.S. involvement in the Caspian Sea region must be interpreted by Tehran as an attempt by Washington to further isolate Iran from the international community. Contributing to Iran's worries over U.S. encroachment in its backyard are the unresolved issues it shares with the other four Caspian littoral states regarding the sea's legal status and how best to divide its territory.

In July 2001, Iran acted on its frustrations by deploying a warship and fighter planes to threaten two Azeri research vessels exploring the Araz-Alov-Sharg oilfields on behalf of British Petroleum. Ownership of the south Caspian oilfields is a continuing source of dispute between Azerbaijan and Iran. The Tehran Times described the presence of research vessels as an "imprudent act of Azerbaijan, supported by Britain," and Iran reacted by positioning troops along its border with Azerbaijan. While territorial matters among northern Caspian Sea states have largely been settled diplomatically, this arm-flexing display by Iran indicated that the resolution of similar issues in the southern Caspian will continue to be marked by a not-so-delicate balance of economic/diplomatic negotiations and military action.

The world's largest inland body of water, the Caspian Sea is bordered by five states: Russia, Kazakhstan, Azerbaijan, Iran, and Turkmenistan. It sits on top of the world's third largest hydrocarbon reserves (projected to hold between 17 and 33 billion barrels of oil), as well as up to 325 trillion cubic feet of natural gas. These resources are not evenly distributed throughout the sea, however; the majority of off-shore oil reserves lie closest to Kazakhstan (the Tengiz and Kashagan Fields) and Azerbaijan (the Baku Fields). In addition to hydrocarbons, the Caspian has 90 percent of the world's sturgeon and is, therefore, home to the caviar industry.

Not surprisingly, the three major issues at the root of Caspian territorial disputes are hydrocarbon resources, fishing, and the international waters used to access and transport them. The Russian Empire/Soviet Union and Persia/Iran signed agreements in 1921 and 1940 recognizing the Caspian Sea as a lake belonging to and divided between them. Following the dissolution of the Soviet Union, both Russia and Iran wanted this agreement to continue despite assertions of independence by the breakaway states of Kazakhstan, Azerbaijan and Turkmenistan. Eager to exploit the natural resources off its coast and establish its economic independence from Russia, Azerbaijan declared in 1998 that, because the Caspian Sea is an international lake, its surface and seabed should be divided along a median line into five sectors (the size of which would be determined by each state's respective shoreline length).

Russia and Iran responded by pointing out that, as a member of the Commonwealth of Independent States (C.I.S.), Azerbaijan had agreed to observe all treaties and agreements reached by the former Soviet Union. Russia and Iran were aware that if the Caspian Sea were divided according to Azerbaijan's proposal, their respective territories would neither afford them ownership of the majority of Caspian oil nor access to the surface that is necessary to profit from its transport. Furthermore, Tehran recognized that any plan allotting territory to a state based on shoreline length would leave Iran with the smallest share of the Caspian (between 12 to 16 percent) rather than an equal fifth.

Despite its objections to Azerbaijan's plan, Russia could hardly enforce the C.I.S. agreement in 1998; instead, its main concern at the time was reaching a solution before the United States could influence territorial negotiations. Rather than insisting on an equal division of the sea, Moscow made the best deal it could: an agreement with Kazakhstan that divided their shared portion of the Caspian by seabed only. Tehran vehemently opposed this arrangement or any other that based division on shoreline length; it insisted on "condominium" use of the sea or, at the very least, division of the Caspian into five equal sectors. Azerbaijan and Turkmenistan continued to advocate division of both the seabed and the surface, although neither could agree on which of them owned the Chirag and Azeri oilfields.

While the agreement between Russia and Kazakhstan divided the littoral states into two camps (one wanted division by seabed only, and the other by seabed and surface), it also effectively ended the argument over whether the Caspian Sea should be divided, leaving instead the issue of how it should be divided. Rather than quarreling over definitions of a sea or a lake, many experts suggested that the Caspian could simply be considered a "unique reservoir" that shares characteristics of both seas and lakes, and whose disputes should be resolved by nontraditional agreements worked out among the littoral states.

Apparently, Azerbaijan recognized the unlikelihood that a solution to the Caspian dispute would ever achieve the consensus of all five states and entered into a deal with Russia in 2001. Baku also must have taken into account its reliance on Russia's oil export monopoly as well as its ability to influence the Nagorno-Karabakh conflict, and it admitted that further protests of the Russia-Kazakhstan agreement were futile. Rather than continuing to voice objections alongside intransigent allies such as Turkmenistan and Iran, Baku moved closer to Moscow's camp by consenting to a similar deal that divided the seabed only. A third bilateral negotiation between Kazakhstan and Azerbaijan effectively ended the uncertainty over territory in the northern Caspian and unfroze exploration of her hydrocarbon reserves.

The helplessness that Tehran felt watching the northern Caspian Sea debate unfold undoubtedly contributed to the militaristic actions than Iran undertook in 2001. While the confrontation occurred over contested oilfields, however, Tehran's interests in the Caspian may be as much geopolitical as they are economic. Since most of Iran's oil reserves lie in the Persian Gulf, the dilemma Iran shares with its Caspian Sea neighbors may be driven by the apprehension that it is being left out of a regional decision-making process, as well as the desire by Tehran to check further U.S. involvement in Central Asia.

Iran has, so far, had lukewarm results in its attempts at building regional cooperation. Designed to improve its image from that of xenophobic Islamist to engaged neighbor, Iran's foreign policies take into account the search for partners to replace the security deals provided by the Soviet Union, as well as the need to construct regional arrangements capable of balancing Western forces. However, Iran's promotion of Islam and Middle Eastern ties has done little to overcome the religious and cultural dissimilarities it has with its northern neighbors. Furthermore, Tehran finds that it cannot compete with offers by outside powers such as Russia and the United States to provide economic and security assistance to its neighboring Caspian states.

One reason for Iran's predicament, at least in Tehran's eyes, is the stranglehold placed on it by the United States -- a fear not altogether unfounded. The U.S.-Iran-Libya Sanctions Act of 1996 wounded Iran's bargaining position vis-?-vis regional states by prohibiting relations between U.S. oil companies and Iran. The intention of this act was to control Caspian oil export routes by prohibiting the involvement of U.S. oil companies with the construction of a proposed pipeline through Iran to the Persian Gulf, a project that if completed would diminish the importance of the more expensive and less efficient U.S.-backed Baku-Tbilisi-Ceyhan pipeline. Finished in 2005, the Baku-Tbilisi-Ceyhan pipeline makes possible the export of oil across Georgia and Turkey to the Mediterranean rather than via Russian pipelines or shipping through the Dardanelles. Simply put, the new pipeline breaks the oil export monopoly that Russia previously held and further isolates Iran.

In light of increased involvement by external powers in Baku and continued disputes with Azerbaijan over southern Caspian oilfields, Tehran's relations with its northern neighbor are understandably poor. Recent offers by the United States to improve the Azeri navy have reinforced Tehran's suspicions that Baku may be close to joining the anti-Iran coalition being put together by Washington in response to Iran's nuclear ambitions.

Contributing to the hostility between Iran and Azerbaijan is the ongoing ethnic conflict in Nagorno-Karabakh. This region has been a constant thorn in the side of Azerbaijan, whose inability to defeat Armenian-backed insurgents has caused it to rely on outside powers for assistance. On the one hand, Tehran would like to see the conflict resolved in order to avoid an independence movement by Iran's 15 million Azeris (which has gained momentum since Azerbaijan's independence from the Soviet Union) or foreign involvement by the United States or Turkey. On the other hand, Tehran does not want a strong Azerbaijan and recognizes the benefit of using Armenian insurgents to exploit the conflict, render unstable the nearby Baku-Tbilisi-Ceyhan pipeline, and dissuade Baku from further cooperation with the United States.

Azerbaijan's 2001 territorial agreement with Russia may also have signaled to Tehran that Moscow is attempting to expand its control of the Caspian and further reduce Iran's influence there. Meanwhile, Russia advances its role in the region by continuing to balance its support between Azerbaijan and Iran, using Armenia to keep Baku in check, while also providing Tehran with two-thirds of its arms imports and assistance with the nuclear program. Russia inherited the majority of the Soviet Caspian fleet and has undertaken efforts to expand its capabilities, purportedly to affirm its role in the areas of counter-narcotics, counter-terrorism, and sea rescue. Along these lines, Russia conducted live-fire naval maneuvers in the Caspian in October of 2001, followed by the largest joint exercises in post-Soviet history in August 2002 with Azeri and Kazakh forces. Additionally, Moscow has moved a land-based missile site from the Baltic to the Caspian.

Renewed interest in the Caspian Sea region by outside powers, continued hostility between the United States and Iran, and the perception by Tehran that it is being left out of the regional decision-making process renders predicting Iran's future regional Caspian policy difficult. However, despite the unstable relationship between Iran and Azerbaijan, it is not clear if Iran will continue conflict with its neighbors. Instead, it may pursue increased regionalism through bilateral and multilateral agreements that address its economic and security needs. Tehran may strengthen the Economic Cooperation Organization -- which includes Iran, Turkey, Pakistan, and the six former-Soviet Muslim states -- and initiate analogous arrangements that increase its regional power status. Pipeline negotiations with Kazakhstan and Turkmenistan, and even the possibility of a route from Baku, are certainly possible in the future given Tehran's desire for an alternative to the U.S. or Russian-backed options that currently exist.

As the world demand for oil increases and U.S. influence in the Middle East remains shaky, Iran will continue to nurture relationships with emerging outside powers such as China and India -- and, in light of U.S. policy of containment against it, Venezuela -- as alternatives to the U.S.-led international system of market democracy. Non-Western based organizations, such as the Shanghai Cooperation Organization and Organization of Petroleum Exporting Countries, may offer Tehran the political, security, and economic cooperation it recognizes as necessary for achieving the regional great power status that it covets.

Nevertheless, the uncertainty over south Caspian territorial disputes and Iran's perception that its "back is against the wall" will continue to make military action by Iran a real possibility. As U.S. threats over Iran's nuclear program and moves by Russia to reconsolidate its Central Asian interests increase, the frustration of Iran's traditionally xenophobic leadership will likely continue the country's involvement in the Nagorno Karabakh conflict, as well as gunboat diplomacy on the Caspian Sea.

Report Drafted by Andrew Katen

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